E Ink Holdings Inc. (8069) Earnings Call Transcript & Summary

Welcome to E Ink Fourth Quarter 2021 Earnings Conference Call. Joining me today are Chairman, Johnson Lee; CFO, Lloyd Chen; and Finance Senior Director, Patrick Chang. Now let me turn the call over to Lloyd.

Good day, everyone. Before we start, let's take a quick look at the safe harbor statement. Next Page, please. All right. So for 2021, the whole year of sales revenue was around NT$ 19.65 billion, operating profit of NT$ 3 billion, net income of NT$ 5.15 billion and EPS, NT$ 4.53. As for the 2021 net income and EPS was historically our second best, and it's also worthwhile to mention that operating income has been higher than both income since 2020. Next page. And for operating profit, it continues to grow due to the stronger demand from markets and through eReader, eNote, Retail, Logistics and Digital Signage. Next page. As for the ROE and ROA, these 2 indexes have been rising since 2017 as you can see from the screen. It was single digit and in 2021, it jumped to the double digits. So the ROE was 15.4% and ROA was 10%, respectively. Basically, it shows [Audio Gap] for the assets with the whole affluent are a positive premium trade both of cash assets and total assets and for the net asset value per share. Next page. For cash flow, cash flow -- given cash flow was a decrease of NT$ 13 billion to NT$ 8.8 billion cash, we were positively are converting cash on financial investments into CapEx of a production line of the strong market environment. The total financial assets plus cash as you can see from the screen was increased to around NT$ 33.7 billion as of 2021. Next page. For the dividend, our growing dividend along with the company's growth, as you can see on from the screen, shows positive trend. In addition to those financial numbers, I just explained, we continue to share a growth in the accomplishments that we achieved in the third quarter last year, apart from the continuous -- from the TCSA Taiwan experts, Hsinchu Science Park Innovative Product. We had quite achievement of ESG achievement, basically 2021 standard approval of CSA Enterprise of Sustainability Assessment, E Ink was very much on the top 10% under of the Global Electronics Equipment, Instruments & Components, which is also included from the 2021 standard approval global sustainability chain. And last but not least, we also participated branding Taiwan last year and we were selected on 2021 on Taiwan top global brands. Next page. At the CES of 2022, Philips owned by TPV company, an analysis of the world's first of full screen display combining color LCD with zero damage to eyes, our technology ePaper of this innovation of commentry products for although LCD and paper display. And this product also more of the innovative product of the world's where CES issued. And there is also a crossover collaboration of between BMW, which has blocked it be it a newspaper display technology of that's a new concept vehicle at last we have showed. Combining our innovative product of digital train versus BMW's intelligent design algorithms enables some of the exterior to change from that one by the growth. This vehicle basically uses the technology that has been developed by artifacts on normally the color of building blocks. That expands the use of digital ePaper display technology views. In addition to the personalization on car gestation, a variable exterior also contributes some to the efficiency of the vehicle by nature, like exterior on top base which reflect sunlight and conversely afflict exterior on cold days. So this could reduce amount of energy the vehicle uses for heating and cooling the interior, which is very much helpful for car production. Next page. In this page, and this one, it is the recognition with the excitement of FTSE Green, the leading global index provider, according to their green revenue of data model of 99.93% of E Ink revenue in 2020 below to the green data and FTSE Green revenue of model basically is designed to measure the revenue exposure of public company engaged under the transition to the Green product. Next page. And for the following 3 pages, I would like to give you a few of examples. The first example here is relative to the reading devices and under the assumption of 5 year of compared with our paper books. eReader provides 160,000x (sic) [ 106,000x ] that's CO2 emission and compared with TFT-LCD tablets. ePaper readers can reduce the CO2 emission by 50x. Therefore, our eReader not only providing comfort reading but also a carbon reduction. Next one is screen retail on ESL tech. And once again under the assumption of 5-year of time period, compared with the convention of Paper Tech, ESL produces of 57,000x less of CO2 emission and compared with TFT-LCD Tech, ESL produces of 12,000x less on CO2 emission. And the last example about -- but not least one, this is about the digital side and ePaper bus stops can be gradually seeing in cities globally including Taiwan and then solar powered bus stops are easy to dig-in so and make a pretty much zero carbon emission. Meanwhile of the paper digital signage first 1 in the world certified by the International Bus Stops Association. And our product basically of this product with a less slight dilution. And we also run a very simple scenario analysis assuming of 64,000 bus stops in Taiwan with useful 5 years compared with TFT-LCD Signage, we produce 200,000 tons less CO2 emission. And the next one is also a very good example of rounding the ecological travel. Global Railway KD is rounding the new low emission trends based on the electric and diesel traction and combined -- and even combined our Color ePaper to enable in ecological travel solution. It is also the world's first of E Ink Color technical information board replaced the traditional printed postered in the trend. And very luckily, the same display scheme is also available in Taiwan, we shared a bit there. This page is relevant to the response to Climate of Change of last December of E Ink tarriffs of RE100 target by 2030 and Net Zero carbon emission by 2040. Basically we endeavor to protect environment with the challenging target. And E Ink is the first display company to set such goal. And as you can see from this screen, the lower right corner, we already signed off the initiatives such as TCFD of climate-related financial disclosure and SBTI, science carbon reduction target commitment. And also the climate declaration of the net zero carbon emissions and given U.N. of net zero carbon emission activities. In addition to the U.N. process development goal SDG 13 for climate action, we also announced today that we officially joined RE100 goal of net zero comparison and then achieved RE10 target by the end of this year. And expected it to be the first display company growth of RE100. Next page. And I would like to share more with you about The Climate Pledge. The Climate Pledge was launched on the 2019 by Amazon in Global Optimism driven by the 300 companies around the world. And we are the first company in Taiwan and the first display company in the world to signing up climate pledge. Next page. I also would like to talk about RE100. So a brief introduction for RE100, basically it's a global initiative led by Climate Group and CDP build the purpose of this bring together both the influential companies from the world, which have committed to 100% use of the renewable energy. Currently up 340 members in the world covering a variety of industry to promote the use of renewable energy. So in order to achieve our RE100 target, basically we did go through different steps. For example, we will purchase RECs, Renewable Energy Certificates, or PPA through the Power Purchase Agreement. And basically, all the sites across E Ink to definitely go also to this range and it is expected to keep up RE10 by the end of this year, as I mentioned earlier, and RE40 by 2025 and eventually reach RE100 in 2030. Next page. As I mentioned earlier, color ePaper display renews all the railway and we are glad to see them also in Taiwan Metro as well. Together we plus, is a better color gamut in contrast ratio, which is very much suitable for the digital signage of the information and also retail signage to further expand in to our smart cities. And the last one, we will be showcasing of E Ink latest and greatest innovation technology and products that Touch Taiwan from 27 to 29 of April, come see us See More Colors, and we enable to make services to market growth.

[Operator Instructions] The first question is from Jerry Su.

So the first question -- yes, I was just wondering, can you give us some more update about your capacity expansion? I know you mentioned earlier -- I mean, in the past that you're adding 4 lines since late last year and then until end of this year. Just want to check what is the progress right now? When should we see some contribution? And is that 1.4, 1.3 to 1.5x addition in 2022 in terms of area? Is that still valid?

Thank you, Jerry, for your question. So yes, I think in terms of our capacity, like what we mentioned during the last financial conference call is that we're going to build out 4 additional lines of equatorial lines in Hsinchu Science Park. At the same time, we're going to build up a new building for further expansion. So our first line has been running now. The target was Q1, get it ready and then so we can get into production. We're kind of lucky in the sense that in Q4 last year, we were doing pilot runs and the qualification with customers and then that kind of extended till January time frame. And now we're in that stage of ramping up our first new line. And then at the same time, our 2 additional line has arrived at E Ink. We're tuning it. We should expect it to be in production maybe in next month for the first -- the second -- the 2 lines -- 1 of the 2 lines ready in next month and 1 after in a month or so after that, and the last 1 at the end of the year. So I believe we're in progress, and we should be able to meet the expectation of expanding our capacity by 1.3x to 1.5x this year versus last year. So the progress is good. Thank you.

Okay. Then just 1 follow-up on that is given this aggressive well, maybe for us, looks aggressive for capacity expansion. Do you have any customers guarantee or prepayment that could protect your spending and also the investors return?

Yes. So Jerry, I think that's a great question. So I mean, when we did that expansion, I think last year -- no, the year before that, when decided to expand, I think, 2 years ago, we discussed with customers, and we got some guarantee from them. We don't want to bet just on 1 big customer, so we actually spreaded our costs to different partners. And so we did get some commitment. But now it looks like our capacity is really not enough in terms of the market demand. I think because -- maybe because of inflation or the great resonation around the world that the demand for ePaper, for ESL remains very strong, actually stronger than we expected it. And at the same time, maybe because of inflation, some consumer products are not selling as well. So I mean the eReader market, it's the cheapest entertainment in the market besides watching TV. You're already paying for that cable, but books is relatively cheap. So we're seeing that demand growth from eReader as well. So the overall demand from our customers remain very, very strong. I mean stronger than we expected, but now the problem is do we have the capacity to support that. So going back, the key is whether we can expand fast enough to fulfill our customer needs.

Okay. I think recently, we also saw that Walmart has announced some sort of a strategic alliance with Wealthzi. I'm just wondering, I think you keep mentioned that capacity seems not enough even after the adding the 4 lines. Have you considered this Walmart upside when you made that decision to add these 4 lines? Or we should be thinking that additionally, you might need further expansion in 2023 or 2024?

Yes. So Jerry, another great question. So we actually -- when we expanded that 4 line, we did have some buffer for additional business. But just trying to maintain the current demand, it's quite tough on us. So we didn't expect the news from SES and Margot AG with Walmart to happen so soon. I mean we've been working with our partners with you just mentioned the W company. So Walmart -- there's 2 parts, there's Walmart International and then Walmart U.S.A. We've been working with Walmart International for a couple of years. And Walmart U.S.A. doing pilot sites or our partner has been doing pilot sites with them. So I mean, if that takes off, then E Ink would need a lot more capacity to fulfill that. I mean, I think 2 years ago, you saw in the news, Schwarz Gruppe, the sixth largest retailer in the world decides to install ESL across all it's stores. And then right after that, RVD, the ninth largest retailer in the world decides to install ESL at the same time. And then this rush of installation in Europe, it's just crazy. I mean the demand is strong. Now as U.S. start taking off, then I think E Ink needs a lot more capacity to fulfill that.

Okay. Okay. And maybe a last question regarding this capacity matter. As you have expanded like average ARPU of 1.4x this year, how are you going to allocate or what have you decided on the allocation among ESL and eReader? And how should we think about the revenue? Shouldn't that your revenue also grow at least by 140% year-over-year or how should we think about that?

Jerry, clearly that's a tough question. So I mean -- I think last year, we did say in our conference call that we're not going to expand our module capacity. We're going to be working with our partners, our module partners which currently we're at 8 -- we have 8 module partners working with us. So even with the 1.4 or 1.3 or 1.5x capacity on the material side, that doesn't translate to 1.3 to 1.5 sales revenue because selling material, the revenue is a lot smaller than selling modules. But yes, we do expect the revenue growth versus last year but not at 140%, I'm sorry. In terms of allocation, I think definitely, we want to support all our customers and -- but we do pick kind of our priority and mostly on new technology, supporting new technology, supporting key applications where we think there's a huge growth potential down the road. And so yes, sometimes, we're looking at more of a long game. How do we become the company, for me, I mean, how do we become the next Intel, the next arm, be it the next great component company or 3M, what 3M is -- they do brands, they sell materials. But I mean, E Ink is more of the display and material company. So how do we enlarge ePaper applications is our main focus. I mean short term is important. So definitely, we need to continue to grow, so we can return back to our investors and also take care of our employees. That's very important. But also investing in new technology, investing in R&D to actually further on the growth of our existing applications and also new applications. I think we're just on a crisp of the application we can go after. So yes, we're going to grow versus last year, but it's not going to be 140%, I'm sorry. But we're going to invest in the future and play that long game. How do we become the company that people talked about.

We will take next question from [indiscernible].

Perfect. I think Jerry already asked it kind of, but could you maybe be a bit more clearer like on the capacity allocation because you talked a lot about like ESL and like that the demand has been the same at the moment. So could you maybe give us an idea how you are estimating like the revenue split like shift from like consumer to maybe then IoT? And furthermore, how you're projecting like the gross margin impact that might have on your business?

Yes. So I understand your question, but we don't really break down in terms of how we're going to allocate the capacity for IoT, for retail or for consumer products. We don't do that. I'm sorry, because I mean, currently, we're the only place that people can come and buy ePaper and that -- disclosing that will cause a lot of concerns on our side. So yes, we're sorry, we cannot share that.

Okay. But I understand clearly that like the demand, especially in the new ESL segment is like very high at the moment and that you will try to serve like a lot of that demand with your current capacity expansion.

Well, so -- yes, I mean, E Ink does make a fair amount of margins, yes. And we do want to make sure that our customers, our partners also can profit from it. So selling materials versus selling display module in terms of gross margin, it's better to sell materials in selling display modules. As we stated in couple of conference calls back, E Ink has decided not to really expand its module capacity, but to work with partners to expand this market. And we do believe that the gross margin will be better, not only because of higher material sales, but also because from a display module side, we're seeing a price drop from our suppliers on the TFTs and ICs. So I think that's going to help out our margin. Last year, we didn't really raise our price on our customer because we thought that we're still in the infancy stage of opening up this market, and it's not right to raise your sales price because now your supplies range your price. So we kind of just suck up the price increase. But now I think it's getting more back to normal. It's not at that stage yet, but we're seeing that trend of material price down from our suppliers. So I think that will help out our margin as well.

Perfect. That's super insightful. Maybe just 1 quick last question. As you mentioned the company earlier like Schwarz Gruppe, which you said is like 1 of the biggest retail companies. Could you maybe just give us an like idea like how are you partnering at because in the report by third page, I read that so far, only a couple of hundred stores have like ESL implemented so far. So could you maybe just give us an idea of this like it's a validated number of supply like a lot of more ESL bits for them?

Yes. I mean Schwarz Gruppe, it's a pretty big retailer -- I mean, it's the sixth largest in the world. So they have a lot of stores over Europe, in U.S., I don't think they're in Asia, but I think they're mostly in Europe and U.S. And yes, so I think they saw the benefit of using electronic shelf labels, using E Ink display and how it can help them become more of a green company. Less carbon emission while improving your efficiency and maintaining the look and feel of the store. I mean it doesn't emit light. So you're not really bothered by it. They saw the beauty of that and saw the ROI, whether it makes sense or not, and it makes sense. So once it makes sense, they test it, they test it with a couple of stores, expand it to maybe 10 or 20 stores and they liked it, and they've really start expanding across their chains. And I think that also prompted other retailers to take a serious look into ESLs, and I think that has a rolling effect. I mean, it's chain effect. So we're seeing that boom in ESL in Europe. And I think that it's about to happen in U.S. We're seeing some retailers in the U.S. are looking into selling electronic shelf labels, in Canada and Mexico. So that's also happening in North America. But I mean, Europe has always been the market for ESL. And I think Europeans being more environmental, more eco-friendly. So I think it's just a natural choice.

Now we would like to take next question from [indiscernible].

Sure. Can you hear me?

Yes, I can hear you. Thank you.

So just a couple of questions about the ESL. So you mentioned about the couple -- the existing brands as well as the potential clients. I mean, typically, how long those ESL rollout project can actually take, so for them to roll out the ESL systems for their up risks?

Thank you. Yes, it's a great question again. Yes, it really depends on the retailer side and also a number of stores and number of SKUs that's in the store. Typically on the smaller stores and maybe a 100-store chain, it can probably be done roughly in a year or so. But if you really expand that to a lot bigger in thousands of stores and 10,000 SKUs, then that's going to extend it in a couple of years to get that done. And also it really depends on the labor situation at that country that's going to be installed. You still need labor to install these price tag. So having that time perfectly well -- it's a science. It's really a science by our partner that can really do it well.

I see, I see. But it's going to be actually quite -- actually a short period of time. I mean, within the 2, 3 years that you would expect those large retailers may actually roll out to ESL systems?

It really depends on the retailer. It's their call. So I mean, we can facilitate it, but it's really their call.

I see, I see. Then typically, in terms of the replacement cycles for those ESL that you already installed, how we can actually -- do they replace the ESL display?

Right. So I mean, I think 10 years ago, when we started looking at this market, it was black and white E Ink display, and then we move into 3 color E Ink display, black, white and then red, and then we have another 3 color, black, white and yellow. And then the latest launch, I think, last year was black, white, red and yellow. So from our past experience, during the black and white when they want to do that replacement, they basically replace the whole tag, move that into black, white and red or yellow. Now we're in the phase of 4 color situation. So we believe that it will be the same. I mean, they're probably going to replace the whole tag because the price point now is relatively cheap for their ROI. Now the old cycle was roughly, I think, 3 to 5 -- well, more like 5-year replacement cycle. But because the E Ink display has really improved, the semiconductor has really improved and also battery technology has really improved, so that replacement cycle has actually expanded a bit longer. Now we're talking maybe 7 years or 10 years or 9 years, depending on the user scenario. So that replacement starts once they need to replenish. So I mean, it's a good business because you get that replacement. But I think that's subject to E Ink whether we can continue to innovate enough that it makes sense for these retailers to say, I want a new tag, I'm not just going to change out the battery and just reuse old tags. So I think it's important that E Ink continues to innovate, provide better ePaper technology, better color, lower power, cheaper price, so that it's a no-brainer to change on a new tag.

Understood. Understood. So it should be more driven by the upgrading instead of just a period replenish?

Yes. Well, so yes, I mean because -- I mean there's a battery life especially on an ESL, right? It's roughly that 5-year time frame. So when the time is up, they might just want to change a new tag instead of replacing that battery because it doesn't make a lot of sense. I mean you have to open up the whole tag. There's a lot of labor costs. Maybe it's not worth it, buying new tag may be cheaper and you get better technology as well. So that's a replacement business, right? But I mean, currently that -- I mean, we're still at 5% market penetration, and it's growing really fast. So once we hit that 20%, 30% market penetration rate, I believe it's going to be a no-brainer for major retailers to look into installing all price tags.

Indeed. Yes. Yes, makes sense. Then in terms of -- I mean it's very actually excited to hear about your analogy about being Intel's or the 3Ms in this field. In terms of the R&D spending, obviously, it has been very aggressive that you've been spending on. How should we think about kind of your R&D spending going forward given that you have very strong ambitions being -- continue to be dominant leaders in this field?

Right. Another great question. So I mean we've been spending roughly 17% to 18% of our sales revenue on R&D. But as our sales revenue to increase, that ratio might fall a bit. But we're still continuing to invest in R&D, actually put in more money into R&D. But whether that's still going to be at 17% or 18% remains to be seen. There's a lot of applications we want to go after. There's a lot of current application where we think the penetration rate is not high enough. So we got to continue to invest in some more automated production process or next-generation product that's cheaper, better, lower power and better color, flexible. There's a lot of things that we need to do. So we're going to continue to invest in R&D and make sure that we continue to lead the market to show the market that E Ink can come out with really good technology to our customers.

Okay. Okay. Then when you think about -- which area that you're going to invest within R&D? Is it fair to assume that you continue to be more focusing on the raw materials, I mean, upstream part of the business instead of kind of modules and those more application side? And I'm asking these questions because if your diversified applications, then you may want to actually spend more on kind of application development instead of materials, which you have a lot of leverage on.

Well, that's a great question. That's something we need to really think about. I mean it's something we talk internally as well. We do invest a lot of money on the material side. But also on the module side, we looked into innovations as well. But I think last year, we announced our first on-cell touch. Meaning we integrate the touch onto the top layer of the surface. Now is there more we can do in terms of a display module where we can make the module cost even lower so that the market penetration rate will be higher? Yes, there's something we can work on. But you're right, we're going to invest a lot of money into the material side, but it doesn't mean that we're not looking into innovations on the module side. And I think the key is -- here is the work we do does it help us open up markets, does it help us grow this market. I think that's the key.

I see. I see. Okay. Sorry, just finally, in terms of the applications that you are most excited about after eReader and then ESLs, what would you -- which applications are you most excited about?

Well, I think there's a couple of applications we're looking at. One is on the educational side, can we replace textbook in schools? I know in Japan, there is a talk about having 1 computer, giving that computer for students. But I think at that time, I think that was last year. Our technology wasn't ready yet. You need color, you need low power, you need to be a right price point and it got to be healthy on your eyes. You can't hurt the eyes and you need to be able to play video. So we're working on improving all these aspects. How do we become a display technology that can replace textbook or even digital note taking device. That's 1 part we're working hard on trying to get to. So we work with brands in Japan like Wacom, which provides 1 of the best writing experiences and also Microsoft, which has an MPP protocol that has also new pen input. And how do you create that user experience? And how do you create that price point that's low enough that you can penetrate the educational market around the globe? We're very lucky that we have a couple of partners that we work with like in Japan, we work with Fujitsu, which is a major player in education. In China, it's Huawei and Lenovo, they're a major player there. And U.S. it's HP, Dell, Apple, Microsoft. Those are the key players and maybe in Taiwan is Asus, but we're not into Asus yet, we haven't got into their supply chain where HP or Dell but we're work -- I mean, we're working hard. I mean, it's quite the right experience, the right display technology where we tend to get into their supply chain, work with them, how do we penetrate that market. We're very lucky, I mean, in China, we'll work with Huawei or Lenovo. And hopefully, we'll see some progress there. That's on the educational side. Also digital signage. I think digital signage it's a big part -- I mean, it's a natural match, right? We're low power, energy efficient, some are readable. That's the market that's very interesting for us. How do we penetrate that? People are talking about carbon emission. I mean just Lloyd just mentioned, right, being combined with the solar power, it creates zero emission. I mean what digital device creates zero emission. I mean, E Ink with solar power, that's zero emission. And so I think those are markets that we really need to work harder to get more market share and to really win that market. And also into architectural products, I mean, you saw on BMW and CES, right, they have a car that could change color and then become more of an efficient -- energy-efficient car. So it lowers your temperature, so you don't have to jack up your air-con. I mean those are stuff -- those are markets that E Ink should also play a big role in. And also logistic tags, right? People are talking about how do you recycle these packages, and those are individual items. So that bond is going to be bigger than ESL or retail. So that's another very interesting market. I mean there is a lot of interesting market E Ink is looking at, but we really need to pick our battles carefully, so we don't overextend ourselves, still provide the right ROI for our investors. At the same time, we can position ourselves that when the market is there, we can capture it.

We will take next question from [indiscernible].

Congratulations. I'm very fascinated to know more about your original comment about how to expand the ePaper application in the long term and through investing in R&D. I guess, in a way because we want to expand adoption, but so pricing needs to be competitive and low. But what's your view on keeping your ROE and the incremental return on capital and the same uptrend if we keep prices relatively flat. And where you see, I guess, we drive the differentiating factor or have pricing power in the long term?

That's another great question. I mean it's really conflicting, right? If you drop your price, your ROE goes down, everything goes down. But another key factor is can the volume goes up? If the volume goes up, and your cost structure improved even better, now then you can be able to sell at a lower price point, and that will help open up more markets. So yes, so I think we're basically -- I mean, the first stuff we need to do is chase out autoload hanging fruits, right? The market that can afford higher price point let's get those markets first and then move our way down. Just like when we're doing ESL, I think, 10 years ago, I remember that our company was like, what ESL, prices are low versus what you sell as an eReader. But if you look at now looking back, 10 years ago, it might not make a lot of sense. But today, it makes a lot of sense. And so, yes. We see there's a lot of room for improvement on our cost structure, on our E Ink technology performances that we can work at and to become even more competitive. And I do believe that if we can get into a bigger scale, bigger volume, our sourcing power will increase, which will further drive a lower cost. So that becomes a very positive cycle that we get into. And I think we're at that stage now. So we just ought to continue working on this. The key is actually from the business side, whether we understand customers' pain point? How do we enter that market? What is that go-to-market strategy? What problems are we solving for our customer I think those are key points that we've got to continue to get better at.

Great. And can I just ask because incrementally, it almost sounds like there is a tipping point where you can really scale with this capacity add? Which side of the business are you, I guess, seeing greater demand let's just say, for instance, this year and then let's talk a bit long term?

Yes. So I mean we're seeing growth from all of our business units. So that's very good. So yes, I mean, I don't think the problem is demand. So I mean, recently, the focus is not really on the demand side, but how do we launch new technology that can further solidified our position in these markets and become even more competitive. And also, how do we get enough capacity to fulfill the demand I think that has been really our focus at this moment. So I mean, the demand has been very strong. So then how do we continue to innovate and provide a more competitive or better technology and have enough capacity to support that, that's key for us right now.

Okay. So let's say if you're the better horse between the Reader versus the ESL side, which 1 is going to win?

Yes. I mean -- so I mean, to us, I mean, eReader, that's where we started, right? And then we're finally seeing growth last year. So that's on the right momentum. And we're just on a crisp of launching color. I think we've just launched Kaleido and then Kaleido Plus as a second generation. And we're going to be launching more color technology and Touch Taiwan. So that's in April. So yes, please join us if you can or we're going to be at SID in May to show off our latest and greatest. That's on the Color eReader side. But also, we're seeing that explosion in -- and the no taking device, either for office use or even for education. Now that's also just converting from colors -- from black and white to color. So we're seeing that growth, but it's really a small niche at this moment. We're just seeing that growth rate from there. And the ESL, I think, it's just on the right momentum. So that's growing by itself. But we're launching more color like Gallery plus, like Lloyd just talked about in the slides, that further cements our position in that space and also help us get into signage business that, that really need better color. So yes, I mean, and there's a lot of IoT application. People are starting hearing about E Ink and how they can help them, and they're reaching after less how we can work together to further grow those IoT markets. So I think we're on the right track right momentum, but we still got to deliver more capacity, how do we expand. I mean, currently, we have offices in U.S., Japan, Korea, Taiwan and China, we don't have offices in Europe. So I think that's the next step we need to look at. How do we expand into Europe? I mean Europe -- Europeans love E Ink. So I mean they love using our products. I think they're the first users in the digital bus stop signs and also ESL. So I mean that's an untapped market that we haven't put a lot of effort in there. So that's something we need to work on as well.

Great. Is that a this year plan? Or when would that be?

Well, we're looking at so, we've been planning on. But because the COVID situation is not the best, so we kind of just delay that and delay that. But yes, we'll get there.

Great. 2 then dodge me. I'm curious to know more about, I guess, the trajectory because last year was such a fantastic growth. Do you think this year we can even top that?

I look forward to, I don't know. I mean, it's hard to say, but from the demand side, yes, demand is very strong, but then it goes down into how do we -- what application do we give the first priority to, which will affect the revenue side. But overall, we believe we'll continue to grow.

Okay. And the BMW or the auto application, is when would you expect that to really come into production?

Yes. I mean I just asked that question a lot. I mean people are just fascinated by that BMW concept. But really, I mean, we have shown that technology in San Diego in 1 of the parking lots. It has a color-changing skin on the building, so that actually changes color. But I guess because BMW launches it, people are start to talking about that. We're getting a lot of entry on that. Again, that goes down to priorities and also capacity allocation issues. So we're working on a lot of things.

You should tell that model can building, and then you have some hashtags.

Yes. I mean, like that same concept, right, it could apply to your building or your table or even consumer electronic skins. So there's a lot of application that can go with it. We call that Prism. That's our Prism product line. Yes, and it was just -- we're very grateful to BMW willing to show off such amazing car and such environmental usage. So yes, we'll see.

We will take our next question from Jerry Su.

Just want to quickly follow up on the fourth quarter. Can you just explain a little bit about why the 4Qs operating expense has been a little bit higher than past several quarters average? And how should we think about that operating expense into this year, considering you have mentioned that higher spending in R&D, et cetera.

Yes. So Jerry, that's a good question. So I think last year, we booked a lot of bonuses, stock options for our folks because we had a second best and historical high. So I mean we got to reward our employees. At the same time, we were building up our new line of E Ink materials, and we need to hire people in advance and we need to train them. So that kind of really affected the cost side. But looking to continue to grow, we still need to reward our people. I mean we got to take care of the investors. At the same time, we got to take care of E Ink employees. So it really depends on how well we can do this here moving forward. That's the way I -- that's the way we see it. Does that answer your question, Jerry?

Okay. Got it. And then maybe just to ask a little bit about what has been impacting you in February and perhaps March because of the pandemic in Hong Kong and China. I'm just wondering, are you seeing some improvement or relief on the logistics side? And then how should we think about this into the second quarter or maybe beginning of the year. Is there anything that you should do or you have to do to make that logistics more smoother?

Yes. So Jerry, that's a good question. So the way that E Ink books revenue is that we ship the product until a customer receives it, then we book the revenue. So during February, some of our products were stuck at the customs and they couldn't really get back to the customers because it's under quarantine, the China was on their quarantine or trying to get become COVID free. So there wasn't a lot of people to support that. And it was delayed until this month, right? So we couldn't booked that in February. Yes, we do see some impact to that because of logistics and all the COVID policy by China. Hopefully improve, but you never know, I mean, that's not something we can control. At the same time, we need to -- I mean, we talk about E Ink not wanting to expand the module, but instead of working with our customers. So we need to work with our customers to expand our partner to expand their module facility outside of China so that we won't be hit with another situation like what happened in February. But that's going to take us at least a year or 2 to make it realistic to be able in production. That's something we need to work at. It's crazy. So -- but we just got to deal with it. I mean look at different -- in the short term, we just got to look at different ports to get your products into China because that's where a lot of manufacturing is done. But we're seeing also people are moving into Vietnam, moving to Mexico, moving to different places in Southeast Asia. So we'll see. But the situation in Southeast Asia is not the best, especially last year, right? I mean last year, Vietnam was shut down. Yes. But we just got to do a lot of, how do you say, safety policies or dual sourcing in place so that if something happens, we're less -- will be less impacted by it.

Okay. Got it. Maybe the last question on the Color technology side. I think on the eReader, you have somewhat iteration of the Kaleido, and it seems Kaleido Plus. But I think you also have this ACeP technology. So you talk a little bit about how is this ACeP proliferating into the Color eReaders? And when should we see some of your customers started to adopt that?

So Jerry, I think in Touch Taiwan, we're going to be showing off. I think 3 colored technology besides the Gallery Plus we announced. And hopefully, you can be there and then see in person because it's hard to talk about display technology. You got to see it to feel it, right? And we really don't talk about how customers going to use our technology. I just think that we need to build great technology so our customers will be happy and they can launch great products and win more market share or get more revenue for them. That's just part of the game. So please visit us at Touch Taiwan. We're showing of 3 new color technology in Touch Taiwan and also in SID U.S. It's about the same time. One is in April and one is in May, then we're going to be showing those new technologies. And hopefully, you like it.

Due to limit of time, I will now turn over to Lloyd for final consideration.

Thank you for your participation. And let's talk soon, next quarter. Thank you.

Thank you.

Thank you.